Annual “two sessions” legislative meeting concludes

Unity and stability were the main messages presented during the annual legislative session, known as the "two sessions". The meetings of the Chinese People's Political Consultative Conference (CPPCC, an advisory body) and National People's Congress (NPC, the legislature), held on March 3rd‑15th, were notably subdued, with all eyes on the reshuffle that will take place during the 19th national congress of the ruling Chinese Communist Party (CCP) in the second half of the year. The priority accorded to maintaining stability this year will probably mean only incremental progress on reform.

Although the president, Xi Jinping, made no public remarks during the proceedings of the CPPCC and NPC, his presence dominated the "two sessions". The premier, Li Keqiang, made seven references to Mr Xi's recently acquired status as the CCP's "core" leader while presenting the government work report. This exceeds the number of references to any CCP leader in the government work report since Deng Xiaoping pushed to separate party and government functions following China's economic opening in the post-1978 period.

Zhang Dejiang, chairman of the NPC standing committee, also lauded the achievements of Mr Xi and urged consistency in "thoughts, politics and actions" with the central leadership in his closing remarks. While there is likely to be fierce jockeying behind the scenes among politicians looking to secure slots on the CCP's politburo standing committee and wider politburo ahead of the impending reshuffle, the "two sessions" was notable for provincial leaders looking to avoid too much of the limelight.

Economic agenda focuses on risks

Mr Li struck an upbeat tone about China's economic performance in his comments. While the real GDP growth target was lowered to "about 6.5%", Mr Li stressed that risks to this expectation were biased to the upside. The government is targeting consumer price inflation of "about 3%" this year, alongside nominal retail sales growth of "about 10%".

The premier also signalled that cutting excess capacity, curbing financial risks, strengthening financial regulation and cooling the property markets will remain priorities. The lowering of the broad money supply (M2) growth target to "about 12%", from 13% last year, was a modest indication of plans to tighten levels of credit issuance. The work report specifically called for the deleveraging of state-owned enterprises and market-based means to reduce enterprise debt. Struggling firms that depend on bank loans and government support to stay afloat, concentrated in industries such as steel, cement, coal and construction, may come under further pressure and experience more layoffs.

The work report outlined several ways to offset the job losses created by reducing overcapacity and generate long-term growth. It pledged to create 11m new urban jobs, a higher target than last year. China will halve the corporate income tax for small businesses and raise the upper limit of taxable annual income from Rmb300,000 to Rmb500,000 (US$71,000). It will also abolish a slew of administrative charges that enterprises must pay the government. Finally, Rmb800bn (US$114bn) will be invested in railway construction and Rmb1.8trn (US$256bn) in highway and waterway projects.

Policy initiatives

The report vowed to deepen reforms to introduce mixed ownership in the electric power, petroleum, natural gas, railways, civil aviation, telecommunications and defence industries, as well as reforms to open the energy and utilities sector to private competition. These soft targets do not indicate confidence that these tough reforms to introduce "non-public" participation and competition to stimulate the state sector will make much progress in 2017. The report also reaffirmed the government's commitment to create national champions in strategic industries by promising to intensify efforts to implement the Made in China 2025 initiative, as well as support for strategic emerging industries such as new materials, artificial intelligence, integrated circuits, bio-pharmaceuticals and fifth-generation (5G) mobile communications.

As is typical, the NPC approved the national economic and social development plan, work reports by the Supreme People's Court and the Supreme People's Procuratorate, and central and local budgets, in addition to the government work report. These detailed various social, legal, agricultural, environmental and regional development policy initiatives and reforms.

Most noteworthy was the passage of the General Provisions of the Civil Law, which is a step towards the establishment of a long-awaited Civil Code by 2020. The Civil Code seeks to unify a tangle of laws governing personal and property relations under a common framework and is tied to the "rule of law" agenda. The provisions establish basic principles regulating civil activities (such as the definition of a legal person) and will be followed by more specific policies dealing with property, contract, tort liability, marriage and inheritance law.

The development of the Civil Code carries significant ramifications for foreign business in China, because it will shape the nature of interactions in public and private life, and should be closely monitored. Content on the rights side is likely to be controversial, especially in areas such as property, although the bigger problem there has always been effective implementation of existing laws.